Employment law SOS: compromise agreements

Redundancy is a potentially fair reason for dismissing an employee. Provided that a fair process has been followed by the employer, then the risks of losing at an employment tribunal are limited. However, this does not stop employees commencing claims against the employer and recent figures have shown that, on average, tribunal claims cost an employer £9,000 to defend. As such, in a redundancy situation where an employer is paying more than the minimum statutory redundancy payment, it may wish to impose an obligation on an employee to enter into a settlement agreement ('SA') in return for the additional payment. (Compromise agreements were re-named settlement agreements from July last year). SAs are full and final settlement agreements and, provided that the employee seeks independent legal advice on the terms and effect of entering into the SA before it is completed and the SA meets certain statutory conditions, SAs are binding on employees who then cannot commence tribunal claims for breach of their statutory rights (for example, unfair dismissal and discrimination claims). The only other method to entering into a binding agreement is to go through ACAS. Personally, I am a real fan of settlement agreements as they limit risk for an employer. However, an employer must be offering something over and above the statutory minimum payments, otherwise there is no benefit to the employee in entering into an SA. Settlement agreements can be drawn up by your legal adviser in a few days and are likely to cost up to £1,000 for an initial draft.